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CASE NO.: Appeal (civil)  1496 of 2008

PETITIONER: Sumitomo Corporation

RESPONDENT: CDC Financial Services (Mauritius) Ltd. & Ors

DATE OF JUDGMENT: 22/02/2008

BENCH: Tarun Chatterjee & P. Sathasivam

JUDGMENT: JUDGMENT

CIVIL APPEAL NO.  1496  OF 2008 (Arising out of SLP (C) No.8228 OF 2007)

P. Sathasivam, J.

1)      Leave granted.  2)      This appeal is directed against the judgment and order  dated 21.02.2007 passed by the High Court of Delhi in F.A.O.  No. 305 of 2006 by which the High Court dismissed the appeal  filed by the appellant herein for lack of territorial jurisdiction  holding that Section 10(1)(a) of the Companies Act, 1956 will  take precedence over Section 50 of the Arbitration and  Conciliation Act, 1996.

3)      Brief facts, in a nutshell, are: On 05.10.1984, a Joint Venture Agreement was entered into  between Sumitomo Corporation (appellant herein),  Punjab  Tractors Pvt. Ltd. (respondent No.5 herein) and Swaraj Mazda  Limited (Respondent No.6 herein)  comprehensively specifying  the respective rights and obligations of the parties including  the management control of the affairs of the company. The  Joint Venture Agreement, which is filed as Annexure P-1,  contains in Article XVI, arbitration agreement between the  parties.  In the beginning of 2005, the shareholding pattern of the  appellant - Sumitomo Corporation ( in short "SC") and  respondent No. 5 - Punjab Tractors Pvt. Ltd. ( in short "PTL")   & respondent No. 6 - Swaraj Mazda Ltd. (in short "SML") was :  respondent No.5 \026 PTL - 29.04%, respondent No.6 \026 SML \026  15.66%, appellant \026 SC \026 10.44% and respondent No.1 - CDC  Financial Services (Mauritius) Ltd., respondent No.2 - South  Asia Regional Fund, Mauritius, respondent No.3 - CDC-PTL  Holdings Ltd. and respondent No.4 - ACTIS Agri Business Ltd.  \026 17.45%.  On 30.06.2005, an agreement (Annexure P-2) was  entered into between PTL, SC and SML for purchase by the  SC, appellant herein, of 1,573,000 shares of SML from PTL.   Thus, the shareholding of SC increased to 41% while the  holding of PTL came down to 14%.  The said agreement also  contains arbitration agreement in Article II, Section 2.03.          In May-June, 2006, disputes arose between the parties  regarding rights of the parties envisaged in Section 4.1 and  other provisions of the Joint Venture Agreement.  PTL sought  to nominate four Directors on the Board of SML and the same  was disallowed in view of Section 4.1 of the Joint Venture  Agreement.           On 3.8.2006, PTL and 4 others i.e. Respondent Nos. 1to  5 herein filed Company Petition No. 68 of 2006 before the

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Company Law Board, Principal Bench, New Delhi seeking  redressal under Sections 397,398,402 etc. of the Companies  Act, 1956 (for short the "Companies Act") for oppression and  mismanagement on the part of the appellant and nominee  directors of the appellant in the management and conduct of  the affairs of Swaraj Mazda Ltd., the company in issue  (Respondent No.6 herein). In the company petition, the  appellant herein i.e. S.C. filed an application being C.A. No.  259 of 2006 seeking reference to arbitration under Section 45  and alternatively under Section 8 of the Arbitration &  Conciliation Act, 1996 (hereinafter referred to as the  "Arbitration Act").  On 26.9.2006, the Company Law Board  passed an order refusing to refer the parties to arbitration  under Section 45 of the Act. Against the said order, the  appellant filed an appeal being F.A.O. No. 305 of 2006 under  Section 50 of the Act on 30.10.2006 in the High Court of  Delhi.            On 21.2.2007, the High Court delivered the judgment  dismissing the appeal not on merits but for lack of territorial  jurisdiction holding that Section 10(1)(a) of the Companies Act  will take precedence over Section 50 of the Arbitration Act.  Aggrieved by the said order, the appellant \026 SC filed this  appeal before this Court. 4)      We heard Mr. C.A. Sundaram, learned senior counsel  appearing for the appellant and Mr. Sudipto Sarkar and Mr.  Jaideep Gupta, learned senior counsel appearing for the  contesting respondents. 5)      According to Mr. C.A. Sundaram, learned senior counsel  for the appellant, the High Court whilst noticing that it was  the forum under Section 50 of the Arbitration Act has  committed an error in holding that the forum of appeal was  not the forum contemplated under Section 50 of the said Act  and the appeal was liable to be filed in forum contemplated  under Section 10(1)(a) of the Companies Act.  He further  submitted that in view of the fact that the appellant herein  filed an application under Section 45 of the Arbitration Act  though in a petition filed under Sections 397, 398, 402 etc. of  the Companies Act for oppression and mis-management, in  the light of the language used, namely, "judicial authority"  under Section 45 of the Arbitration Act, the order dated  26.09.2006 having been passed by the Company Law Board  (for short the "CLB") in its capacity as a judicial authority  under the Arbitration Act, the appeal against the order lies  under the Arbitration Act.  He also submitted that the source  of jurisdiction of the CLB exercising powers in passing the  order impugned in the High Court is Section 45 of the  Arbitration Act and not any provision of the Companies Act.   According to him, the Arbitration Act has been held to be a  complete code as regards the law of arbitration and the same  being a special statute has overriding effect than the  Companies Act in the light of the language used in Section 50  of the Arbitration Act.  The Delhi High Court is the appropriate  Court authorized by law to hear appeals; hence the contrary  conclusion cannot be sustained and liable to be interfered.  On  the other hand, Mr. Sudipto Sarkar and Mr. Jaideep Gupta,  learned senior counsel for the contesting respondents  submitted that Section 50 of the Arbitration Act clearly  suggests that an appeal shall lie from the order of the CLB to  the Court authorized by law to hear the appeal from such  order of the CLB.  In other words, according to them, in the  event the order under Section 45 is passed by the CLB, the  forum which is provided under law for hearing the appeal from  the orders of the CLB, will be the Appellate Forum.  They  elaborated that Section 10-F read with Section 10(1)(a) of the  Companies Act, provides for such forum to hear the appeal

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from the orders of the CLB as the High Court within the  jurisdiction of which the Registered Office of the company in  issue is situated.  6)      We have carefully perused all the relevant materials,  Annexures and considered the rival contentions. The only  question to be considered in the present appeal is whether the  order dated 26.09.2006 of the CLB refusing to refer parties to  arbitration under Section 45 of the Arbitration Act was liable  to be challenged to the forum under Section 50 of the  Arbitration Act or to the forum under Section 10(1)(a) of the  Companies Act.   7)      It is relevant to point out that in a company petition filed  by the PTL and 4 others (Respondent Nos.1-5 herein) before  the CLB, Principal Bench, New Delhi, the second respondent  therein (appellant herein, namely, SC) filed Company  Application No. 259 of 2006 under Section 45 of the  Arbitration Act for referring the parties to arbitration.  The  said Section 45 reads thus: "45.  Power of judicial authority to refer parties to  arbitration.- Notwithstanding anything contained in Part I  or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial  authority, when seized of an action in a matter in respect of  which the parties have made an agreement referred to in  section 44, shall, at the request of one of the parties or any  person claiming through or under him, refer the parties to  arbitration, unless it finds that the said agreement is null  and void, inoperative or incapable of being performed." By pointing out the provisions of the Joint Venture Agreement  (in short "JVA"), it was contended on behalf of the appellant  that the dispute having directly arisen from the terms of the  arbitration agreement, the same has to be necessarily  determined only by the arbitral tribunal, hence the CLB is  bound to refer the parties to arbitration.  It is not in dispute  that as held by this Court in Hindustan Petroleum Corpn.  Ltd. vs. Pinkcity Midway Petroleums, (2003) 6 SCC 503, if  there is an arbitration clause, in terms of Section 8, the Court  has a mandatory duty to refer the disputes arising between  the contracting parties to arbitrator.  It is also not in dispute  that in Bhatia International vs. Bulk Trading S.A., (2002) 4  SCC 105, it has been held that Part 1 of the Act applies to  international arbitration held outside India also.  On the other  hand, it was submitted on behalf of the respondents that the  appellant invoked the provisions of the Arbitration Act on the  ground that both JVA and Share Purchase Agreement (in  short "SPA") provide for arbitration, in the JVA arbitration has  been provided only in case of disputes between the company  (SVL/PTL on the one hand and Mazda/SC on the other), there  is no provision for an arbitration in case of disputes between  the company and the contesting respondents.  It was also  pointed out that in the two agreements, namely, JVA and SPA  three arbitral tribunals have been named, hence in the light of  the uncertainty regarding the contractual forum to which the  parties are to be referred, the application cannot be  entertained.  It was also highlighted since some of the  respondents herein were not being parties to the JVA, they  cannot be referred to arbitration.  It was also pointed out that  the main grievance is that the company is not complying with  the provisions of Article 87, therefore, the actual dispute is  between the company and the respondents, even though the  company is a party to the JVA, the arbitration clause does not  cover the company, in such an event, the question of referring  the parties to arbitration does not arise.  8)      In the company application filed by the appellant herein,  the main allegation relates to the claim, namely, the PTL has  the right to nominate four directors and it is based on not only

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clause 4(1) of JVA but also on article 87 of AOA.  We have  already referred to the fact that the said application had been  filed under Section 45 of the Arbitration Act.  Section 2(h) of  the Arbitration Act mentions that the "party" means a party to  an arbitration agreement.  To put it clear the party to the  judicial proceeding should be a party to the arbitration  agreement.  As rightly observed by the CLB, the proceeding  under Section 397/398 of the Companies Act always relates to  the affairs of the company.  Insofar as the arbitration clause in  the JVA is concerned, to bind the company it has to be a party  to the arbitration agreement.  It was pointed out that even  though the company is a party to the JVA, no arbitration has  been provided for disputes between the shareholders and the  company or in relation to allegations in the affairs of the  company.  A perusal of the agreement show that the  arbitration clause contained in JVA has provided for  resolution of disputes through arbitration classifying the  company and/or PTL as one party and Mazda or SC as  another party.  In other words, no arbitration has been  envisaged in the JVA if dispute arises even with reference to  the terms of the JVA between PTL on the one hand and the  company on the other.  It is relevant to mention that the  provisions of Section 397/398 of the Companies Act can be  invoked only if the disputes, even among the shareholders or  allegations against each other, relate to the affairs of a  company. In the company petition, the composition of the  board of directors is in the affairs of the company and the  contesting respondents herein have alleged that the company  is not complying with the provisions of article 87 in the matter  of composition of the board.  The CLB, on analyzing those  relevant aspects, concluded that the grievances of the  petitioners therein (contesting respondents) falls squarely in  the affairs of the company and since no arbitration has been  provided in regard to the disputes between PTL and the  company, there is no arbitration agreement at all between the  company and PTL in the JVA to refer the parties to arbitration.   The CLB has also concluded that petitioner Nos. 2-5 therein  are not parties to either of the two agreements.  Based on the  above factual aspects, the CLB has concluded that there is no  commonalities of parties and considering all the relevant  aspects arrived at a conclusion that the application deserves  to be dismissed on the main ground that the company in the  affairs of which application has been filed, is not a party to the  arbitration agreement in the JVA and petitioner Nos. 2 to 5  therein were not parties to the JVA or SPA could also  independently prosecute the said petition as they satisfy the  requirements of Section 399 and finally, the arbitral forum is  not specific.   9)      In the light of the said conclusion, in order to ascertain  the correctness of the same, it is useful to refer to the  provisions of Section 50 of the Arbitration Act and Section  10(1)(a) and Section 10-F and of the Companies Act.   "50. Appealable orders.- (1) An appeal shall lie from the  order refusing to-  (a) refer the parties to arbitration under section 45;  (b) enforce a foreign award under section 48,  to the court authorized by law to hear appeals from such  order. (2) xxx xxxx"   "10.  Jurisdiction of Courts.- (1) The Court having  jurisdiction under this Act shall be- (a)     the High Court having jurisdiction in relation to the  place at which the registered office of the company  concerned is situate, except to the extent to which  jurisdiction has been conferred on any District Court

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or District Courts subordinate to that High Court in  pursuance of sub-section (2); and  (b)     where jurisdiction has been so conferred, the District  Court in regard to matters falling within the scope of  the jurisdiction conferred, in respect of companies  having their registered offices in the district." "10F. Appeals against the order of the Company Law  Board.- Any person aggrieved by any decision or order of the  Company Law Board made before the commencement of the  Companies (Second Amendment) Act, 2002 may file an  appeal to the High Court within sixty days from the date of  communication of the decision or order of the Company Law  Board to him on any question of law arising out of such  order: Provided that the High Court may, if it is satisfied that  the appellant was prevented by sufficient cause from filing  the appeal within the said period, allow it to be filed within a  further period not exceeding sixty days." The above provisions make it clear that the forum shall be  court authorized by law to hear the appeals from such order.   In this regard, it is useful to reproduce the Explanation to  Section 47 of the Arbitration Act which reads thus:         "47. Evidence.- xxx xxxx Explanation.- In this section and all the following sections of  this Chapter, "Court" means the principal Civil Court of  original jurisdiction in a district, and includes the High  Court in exercise of its ordinary original civil jurisdiction,  having jurisdiction over the subject-matter of the award if  the same had been the subject-matter of a suit, but does not  include any civil court of a grade inferior to such principal  Civil Court, or any Court of Small Causes." As rightly pointed out, it is clear that unlike the explanation to  Section 47, Section 50 uses the expression "Court" not  simpliciter but qualified by the wording "authorized by law to  hear appeals from such order."  It is not the court having  jurisdiction if the subject-matter is a suit where jurisdiction is  determined in accordance with the provisions of Sections      16-20 of the Code of Civil Procedure.  On the other hand,  Section 50 of the Arbitration Act specifically used the word  "authorized by law" and not the "Civil Procedure Code" or  "suit".   In Smt. Ganga Bai vs. Vijay Kumar and Others, (1974)  2 SCC 393, while considering relevant provisions from the  Civil Procedure Code in respect of right of appeal against a  finding, res judicata etc., this Court in para 15 held thus: "15. It is thus clear that the appeal filed by Defendants 2 and 3 in  the High Court was directed originally not against any part of the  preliminary decree but against a mere finding recorded by the trial  court that the partition was not genuine. The main controversy  before us centres round the question whether that appeal was  maintainable. On this question the position seems to us well  established. There is a basic distinction between the right of suit  and the right of appeal. There is an inherent right in every person  to bring a suit of a civil nature and unless the suit is barred by  statute one may, at one’s peril, bring a suit of one’s choice. It is no  answer to a suit, howsoever frivolous to claim, that the law confers  no such right to sue. A suit for its maintainability requires no  authority of law and it is enough that no statute bars the suit. But  the position in regard to appeals is quite the opposite. The right of  appeal inheres in no one and therefore an appeal for its  maintainability must have the clear authority of law. That explains  why the right of appeal is described as a creature of statute."  It is clear that if there is no bar in any statute, no difficulty in  filing a suit, on the other hand in the case of appeals for its  maintainability there must be a specific provision/clear

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authority of law. In view of the same, while exercise of original  jurisdiction as provided in Section 47 and other similar  sections of the Arbitration Act should be by the court within  the jurisdiction of which the suit would have been filed, the  appeal shall always be to the appellate forum which hears  appeals from the order of the forum which passes the order.  It  is also clear from Section 37 of the Act dealing with appeals.   Here also the appeal is to the court which hears the appeal  and not the court which exercises original jurisdiction if the  subject-matter had been a suit as provided in the explanation  to Section 47 or Section 2(c) of the Arbitration Act.  To our  mind, the reading of Section 50 clearly suggests that an  appeal shall lie from the order of the CLB to the court  authorized by law to hear the appeals from such order of the  CLB.  To make it clear that in the event the order under  Section 45 is passed by the CLB, the forum which is provided  under law for hearing the appeal from the order of the CLB,  will be the Appellate Forum.  In other words, while Section 50  of the Arbitration Act provides for the orders which can be  made the subject-matter of the appeal, the forum to hear the  appeal is to be tested with reference to the appropriate law  governing the authority or forum which passed the original  order, that is, in the case on hand, the CLB.  Section 10F read  with Section 10(1)(a) of the Companies Act provides for such  forum to hear the appeal from the orders of the CLB as the  High Court within the jurisdiction of which the Registered  Office of the company in issue is situated.  10)     Now let us look into Section 10(1)(a) and Section 10F of  the Companies Act.  An appeal against any order of the CLB  including an order passed refusing reference to arbitration  shall lie to the High Court within the jurisdiction of which the  Registered Office of the company is situated.  That is the  reason Section 50 of the Arbitration Act purposively uses the  expression "authorized by law to hear the appeal".  As rightly  pointed out, it cannot be that an order passed by the CLB  becomes appealable to a civil court or a court exercising civil  jurisdiction when Parliament has chosen to provide for a  specific appellate forum which should hear the appeal from  the orders of the CLB.   11)     In Stridewell Leathers (P) Ltd. and Others vs.  Bhankerpur Simbhaoli Beverages (P) Ltd., and Others,  (1994) 1 SCC 34, the main question for decision relates to the  meaning of the expression "the High Court" in Section 10F of  the Companies Act, 1956 which has been inserted in the  principal Act by the Companies (Amendment) Act, 1988 w.e.f.  May 31, 1991.  The controversy is whether the High Court to  which the appeal lies under Section 10F from an order of the  CLB is the High Court having jurisdiction in relation to the  place at which the registered office of the Company is situate  or it is the High Court having jurisdiction in relation to the  place at which the Company Law Board makes the order  under appeal.  The Court has concluded as under:- "18. For the aforesaid reasons, we are of the opinion that the  expression "the High Court" in Section 10-F of the Companies Act  means the High Court having jurisdiction in relation to the place  at which the registered office of the company concerned is situate  as indicated by Section 2(11) read with Section 10(1)(a) of the Act.  Accordingly, in the present case, the appeal against the order of  the Company Law Board would lie in the Madras High Court  which has jurisdiction in relation to the place at which the  registered office of the company concerned is situate and not the  Delhi High Court merely because the order was made by the  Company Law Board at Delhi. This appeal is allowed and the  impugned order made by the Delhi High Court is set aside  resulting in acceptance of the preliminary objection raised by the

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appellants in the Delhi High Court. The Delhi High Court will now  make the consequential order."  As per the ratio decidendi, the appeal under Section 50 of the  Arbitration Act from an order passed by the CLB on matters  concerning Swaraj Mazda whose Registered Office is in Punjab  is maintainable in the High Court of Punjab and Haryana and  not to the High Court of Delhi.  Reliance placed by the  appellant on the decision of the High Court of Punjab and  Haryana in Hind Samachar Ltd., Jalandhar vs. Smt.  Sudarshan Chopra and Others, (2002) 4 Comp LJ 1 to  contend that an appeal from an order passed by the CLB  sitting in Delhi should be to the Delhi High Court  notwithstanding the Registered Office of the company  concerned is in Punjab is not sustainable.  A perusal of the  said decision shows that the Punjab and Haryana High Court  was not considering the issue of territorial jurisdiction on  matters arising out of an order passed by the CLB.  On the  other hand, the High Court was considering the issue whether  an appeal is maintainable from an order passed by the CLB  rejecting the application under Section 8 of the Arbitration Act  when Section 37 of the said Act expressly provides that no  appeal shall lie against orders specifically mentioned in  Section 37 and from no others and Section 8 is not mentioned  in that section.  As rightly pointed out by learned senior  counsel appearing for the contesting respondents in that case  the Punjab and Haryana High Court did not consider the issue  that when an appeal lies which Court will have jurisdiction to  entertain and decide the appeal.  This is clear from the reading  of paras 17 and 18 of the judgment of the Punjab and Haryana  High Court.  It is also brought to our notice that in  Sudarshan Chopra vs. Company Law Board, 2004 (2) Arb  LR 241 referring to various authorities, the very same Punjab  and Haryana High Court has ruled that the jurisdiction of the  Company Law Board under Sections 397 and 398 is not in any  way affected by the existence of arbitration clause and,  therefore, the CLB which exercises power under those Sections  and passes orders as per the provisions of Section 402 of the  Companies Act can proceed with the matter notwithstanding  the arbitration clause.  12)     In view of our conclusion, we are satisfied that the  appellant has wrongly based its arguments on matters such as  ouster of jurisdiction, over-riding effect of special statute over  general statute, over-riding effect of subsequent statute etc.   Since they have no application whatsoever to the matter in  issue, there is no need to refer various decisions in those  aspects.  Ouster of jurisdiction arises only in regard to original  jurisdiction and it cannot have any application to appellate  jurisdiction as the one provided in Section 50 of the  Arbitration Act.  The appeal is a statutory remedy and it can  lie only to the specified forum.  The appellate forum cannot be  decided on the basis of cause of action as applicable to original  proceedings such as suit which could be filed in any court  where part of cause of action arises.  In such circumstances,  we are unable to accept the lengthy arguments advanced on  the above-mentioned subject by learned senior counsel for the  appellant.  Likewise, the submission of the appellant, namely,  the Arbitration Act being a special and subsequent statute has  no relevance to the present case.  13)     In the light of what has been stated above, we sustain the  impugned order of the High Court dated 21.02.2007 in F.A.O.  No. 305 of 2006.  Consequently, the appeal fails as devoid of  any merit and the same is dismissed.  It is made clear that the  time taken by the appellant in pursuing their appeal before the  Delhi High Court as well as this Court shall be excluded for  the purpose of limitation.  No costs.